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Thursday, February 12, 2009

Great Recession Roundup — February 12, 2009

Items of Interest:

Conn Carroll / The Foundry:
True Cost of Stimulus: $3.27 Trillion — All of the major news outlets are reporting that the stimulus bill voted out of conference committee last night has a meager $789 billion price tag. This number is pure fantasy. No one believes that the increased funding for programs the left loves …

George F. Will / Washington Post:
Runaway Stimulus — The president, convinced that the only thing America has to fear is an insufficiency of fear, has warned that “disaster” and “catastrophe” are the certain alternatives to swift passage of the stimulus legislation. One marvels at his certitude more than one envies his custody of this adventure...
Kathy / Comments from Left Field: Scaring People in a Catastrophe
Jennifer Rubin / Commentary: You Guys Are Freaking Us Out
The Atlantic Politics Channel: The Logic Of George Will
Mr Practical / Minyanville:
Rewarding Failure --
Dear Neighbor,

Just like you I am now going to stop mowing my lawn and paying my mortgage. The government is paying for yours so why not mine? It is a slippery slope rewarding those that fail, so failure it is.
Maestro Greenspan: anyone for some more subprime pie?Cyrus Sanati / NY Times DealBook:
Greenspan Says He Was Mystified by Subprime Market -- Alan Greenspan, the former chairman of the Federal Reserve, told CNBC in a documentary to be shown Thursday night that he did not fully understand the scope of the subprime mortgage market until well into 2005 and could not make sense of the complex derivative products created out of mortgages...

Mr. Greenspan also lays the blame on the ratings agencies and the people that trusted their judgment for the proliferation of the mortgage derivatives that were a major part of the current financial crisis.

“What we have created in this world is an aura around the credit rating agencies about certification from them is the Good Housekeeping seal of approval, ” Mr. Greenspan said. “I will tell you the record of a lot of the forecasters of ratings have not been distinguished. They never were.” ...
Echidne / ECHIDNE OF THE SNAKES: Where The Buck Does Not Stop
Russell Roberts / Cafe Hayek: Not from the Onion
Barry Ritholtz / The Big Picture: Greenspan: Blame the Rating Agencies
Steve Lohr / NY Times:
Large Banks on the Edge of Insolvency -- Some of the nation’s large banks, according to economists and other finance experts, are like dead men walking.

A sober assessment of the growing mountain of losses from bad bets, measured in today’s marketplace, would overwhelm the value of the banks’ assets, they say. The banks, in their view, are insolvent...
$1.4 trillion down and another $1.4 trillion to go

Nouriel Roubini / Forbes:
We Must Nationalize Insolvent Banks -- ... total losses on loans made by U.S. financial firms and the fall in the market value of the assets they are holding will be, at their peak, about $3.6 trillion. The U.S. banks and broker-dealers are exposed to half of this much, or $1.8 trillion; the rest is borne by other financial institutions in the U.S. and abroad.

The capital backing the banks' assets was just $1.4 trillion (last fall), leaving the U.S. banking system some $400 billion in the hole, or close to zero even after the government and private-sector recapitalization of such banks. Thus, another $1.4 trillion will be needed to bring back the capital of banks to the level it had before the crisis, and such massive additional recapitalization is needed to resolve the credit crunch and restore lending to the private sector....
John Gapper / Financial Times: Heaven Help America's Banking System

Banking Solution: Amortization / Regulatory Forbearance?

Vinny Catalano / Minyanville:
Pandit's Amortization Trial Balloon: Can It Float US Out of Crisis? -- At yesterday’s congressional hearing, Citigroup’s CEO Vikram Pandit floated what looked to me like a trial balloon that may turn out to be the path out of the credit-induced economic crisis and, in the process, put to bed the doomsayers' chatter about insolvent banks....

Mark-to-market, the disastrous decision that turned a bad recession into a credit -- and now economic -- crisis, needs to be dealt with. Since the forces aligned against its elimination and/or modification are too formidable for the current and past government officials to overcome, getting around the insane rules is the next best thing. Amortizing the losses for illiquid assets with the prospects of capturing any price recovery would make infinitely more sense than continuing the current regime of efficient-market fantasy thought...

Bill Feingold / Minyanville:
Off the Mark: Mark-to-Market Accounting -- yesterday the splendid Holman W. Jenkins Jr. wrote something really good. Mr. Jenkins, who's generally fairly conservative, even benchmarked to the Journal, put forth an exceedingly fair-minded case for “regulatory forbearance,” which is a euphemism for allowing banks to stop marking to market, at least for a while... Also, yesterday, Andy Kessler discussed the idea of recapitalizing banks, injecting new equity and distributing the shares to taxpayers based on prior years’ IRS bills...
Wall Street Journal:
Economists' Hopes for Second-Half Recovery Fade, Survey Finds — Prospects for an economic recovery this year are fading. — Economists in the latest Wall Street Journal forecasting survey, while still mostly projecting growth in the U.S. gross domestic product by the third quarter …
Conor Clarke / The Atlantic Business Channel: Is there economic consensus about the stimulus?
Phil Izzo / Real Time Economics: Stimulus Looks Better the Worse Economy Gets
Nick Gillespie / Reason:
Announcing the Reason Personal Stimulus Generator! - You May Qualify For Up To $350 Billion!

As the government gets set to spend nearly $800 billion to stimulate the economy, make sure to get your fair share of the plunder by participating in Reason's Personal Stimulus Generator™...
Andrew Jeffrey / Minyanville:
Keepin' It Real Estate: How Good is Zillow? -- Americans finally get it: Home prices are falling.

This may seem like a preposterous statement, what with the entire global financial system in disarray after the collapse of the US housing market, but we Americans are stubbornly optimistic people, content to ignore calamity as long as we possibly can.

A study released this week by Zillow, a real estate information website...
Caroline Baum / Bloomberg:
Imagine Blankfein Questioning Barney Frank -- The chief executive officers of Wall Street’s too-big-to-fail banks traipsed up to Capitol Hill yesterday to submit to questioning from Barney Frank and the House Financial Services Committee he heads.

It was the latest installment in a series of show trials featuring the likes of Major League baseball, the Detroit auto industry, Big Oil and Bad Tobacco.

Not that Congress is outside its jurisdiction in inquiring after the taxpayer money it has doled out. (If only lawmakers were as vigilant about the rest of their spending.) When our elected representatives are out for blood, a legitimate form of inquiry quickly degenerates into finger-pointing and grand- standing for the folks back home...
Robert F. Worth / New York Times:
Laid-Off Foreigners Flee as Dubai Spirals Down -- Sofia, a 34-year-old Frenchwoman, moved here a year ago to take a job in advertising, so confident about Dubai’s fast-growing economy that she bought an apartment for almost $300,000 with a 15-year mortgage.

Now, like many of the foreign workers who make up 90 percent of the population here, she has been laid off and faces the prospect of being forced to leave this Persian Gulf city — or worse.

“I’m really scared of what could happen, because I bought property here,” said Sofia, who asked that her last name be withheld because she is still hunting for a new job. “If I can’t pay it off, I was told I could end up in debtors’ prison.” ...
Justin Fox / The Curious Capitalist: Does Dubai have what it takes to stick to capitalism?
Christy Hardin Smith: Batten Down The Economic Hatches
Pioneer Sees Wider Annual Loss, Will Cut 10,000 Jobs -- Pioneer Corp. will cut 10,000 jobs and close its television operations as the slump in global electronics sales forced the company to widen its annual loss forecast to a record 130 billion yen ($1.44 billion).

Pioneer said on May 13 it will stop making its own plasma panels by March to get out of money-losing flat-screen TV production. It ended output at two of its three plants in Japan last year and will halt operations at the remaining factory this month.

The withdrawal ends more than 25 years of TV manufacturing at Pioneer which shifted its focus from cathode-ray tube sets to developing plasma-screen models in 1991...